2013 Real Estate Predictions, Part 1: New Construction

A new year, and with it, a new start for real estate. Though things don’t change immediately on January 1, the chance to reset and begin tracking the market anew is both exciting and challenging. For with each new year comes new year predictions; and for the nation’s real estate industry, those predictions are hard to make given the unprecedented performance of the market since 2007.However, enough data now seem to point to recovery—slow, but steady, recovery. From that perspective then, we begin our series of predictions for real estate in 2013. Today, we’ll explore the construction industry, because new housing acts as a barometer for the overall health of housing in general.

4 Reasons to Expect Recovery in Construction

1) Housing starts, the number of new houses begun during a particular period, used as an indicator of economic conditions, have risen steadily in 2011. This chart, courtesy the National Association of Home Builders shows that: Note the steep upward line extending from where 2010 meets 2011.

2) In 2012, permits for new construction have reached heights not seen since 2008. We expect more to come, because the extremely low national inventory will spur builders to create new homes and developments.

3) Low inventory, to be more specific, dropped again in November of 2012 and as of December 3, 2012 was more than 22% lower than it was in December or 2011. These figures come from the Department of Numbers, and track 54 U.S. metro areas. Considering winter- a generally slower season anyway- is upon us, we don’t expect inventory to shoot up anytime soon. Again, particularly when coupled with home prices creeping up as well, low inventory encourages new construction as builders race to meet buyer demand,

4) Construction companies are optimistic. As reported on Investment U, “Stuart Miller, CEO of Lennar Corporation, the third-largest U.S. homebuilding business, enthusiastically declared that ‘a very real trend is beginning to take shape… There are empirical data points that are today confirming that the market is showing real signs of stability.’” His statement comes on the heels of steady increases in national home prices and consumer confidence. Lennar Corp. stock also encourages optimism. The company “beat analyst expectations for earnings by 100%. New orders increased 33%. Backlog grew 39%. And total sales rose 30%.”

This performance is mirrored by D.R. Horton, the nation’s largest homebuilder who also “beat analyst expectations for earnings by 225%. (That marks the second consecutive quarter of stronger-than-expected profits.) New orders increased 19%. Backlog grew by 17%. And total sales rose 28%.”

And finally, Eye on Housing reports that “the NAHB/Wells Fargo Housing Market Index (HMI) rose another five points to a 6-year high of 46 in November.” The HMI measures builder confidence about buyer demand for new single-family homes. And in October of this year, single-family permits rose 2.2%.

Overall, signs point to a good year for the nation’s construction companies. The side effect, of course: more construction workers and support staff back on the job. More people on the job means unemployment drops, and consumer confidence shoots up. These factors all converge to further improve real estate’s outlook in 2013.

Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert